Managing Attraction and Retentionin Greater China

Contents

Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Turnover rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

Attraction practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

Compensation and benefit practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 Compensation practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Benefits practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 Bonus practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

Career development practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 Training . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 Education assistance plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 Career development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22

Support mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25 Working environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26 Recognition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28 Leadership and management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29

Methods and effectiveness of attracting and retaining employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

Case studies for employee attraction and retention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34 ABB – Recognized as a best employer among staff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34 CocaCola – The three C's of attraction and retention: Compensation + Careers + Culture . . . . . . . . . . . . . .36 Danone – Career management makes the difference at Danone biscuits . . . . . . . . . . . . . . . . . . . . . . . . . . . .38 Dow Chemical – Use phantom stock to retain its workforce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40 DuPont – Providing both competitive pay and employee development helps DuPont keep staff . . . . . . . . . . .

motivated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42 Tyco Electronics – A multi–pronged approach helps to address turnover . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44 Unilever – Money does not retain talents but culture does . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46 A major oil company – Consistency and sustainable commitment to employee development are key

to staff retention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48 A leading telecommunication company – Leading–edge learning opportunities, combined with

tailored compensation package entice staff to stay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50

Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51 Company profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51 Participating companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53

Executive summary

Consistently listed as one of the top three challenges facing organizations inGreater China, attraction and retention of staff is clearly a recurring theme intoday’s business world. Both business leaders and HR professionals indicatethat this is one of the most critical success factors for executing aggressivegrowth strategies in Greater China. With a fluid labor market across theregion, many employees have taken advantage of the sellers market toachieve their career aspirations and maximize their financial return.

Competition for highly sought–after technical and leadership skills continuesto rage on. Many organizations have begun to turn to more creative methodsto attract the talent they need while retaining the talent they have.

Mercer Human Resource Consulting recently conducted a survey of 114organizations in Greater China to find out the latest processes, methods,tools, and practices currently being used by both domestic and multinationalorganizations in their quest to attract and retain the right workforce. To supplement the survey results, best–practice interviews were also conductedwith 20 plus leading companies to find out their secrets of success when itcomes to solving the mysteries of retention.

Survey highlightsSurvey participation was equally balanced between small to mediumcompanies with 200 to 999 employees and large employers with over 1000staff. 23% of the respondents have over 2000 employees. Approximately 40%are fast developing and 26% are in mature stages of business development.50% of the organizations report total sales profit in the range of RMB 60million to 110 million.

Most organizations reported an increase in turnover activity over the previous12 months. The biggest changes were reported within the professional level,resulting in an increase of 54%, and staff level employees with an increase of42%. The average turnover rate for senior management employees tends to bethe lowest among the four categories of staff which was reported to be lessthan 5% per year by more than 60% of the participants.

The highest turnover occurs within the professional ranks with almost half ofthe participants experiencing turnover between 10 to 20% and some reportingupwards of 35% or higher. One HR professional indicated that turnover hasexceeded 100% in certain manufacturing locations while another HRexecutive stated that turnover for their organization has not exceeded 7% infour years. On the brighter side, approximately 30% of the respondents indicated a decrease in turnover of staff and management level employees.

Sales, manufacturing, and engineering were ranked the top three functionswith the highest turnover. Administration, IT, logistics, and public relationsfunctions were reported to have the lowest level of turnover.

Employee groups with tenure between one to two years suffer from thehighest level of turnover by 44% of the organizations. 28% of the organizationsexperience higher turnover rates in the first 12 months of employment.

Many organizations reported that the cost of replacing any level of staff isestimated at between 25 to 50% of annual salary. Only 15% of respondentsindicated that senior management replacement can cost up to 300% of annual salary.

1

2

This is an interesting observation about the reported cost versus the true costof replacing staff. Research and experience show that the more senior the roleis, the more the replacement will cost. Often the true cost of turnover ismasked by a lack of accurately calculating the elements that contribute to thecost of turnover. These elements can include head–hunters or temporaryagency fees, recruiter’s time, business managers interviewing time, loss ofsales or revenue while the position remains unfilled, employee referral bonuses, advertising costs, relocation costs, etc.

Attraction practicesWhen discussing turnover issues with organizations, it becomes apparentthat it is often a one–sided conversation. Many categorize turnover problemspurely as the ability to retain staff. Recruitment practices, selection criteria,and the ability to identify the best candidate that fits within the organizationare not often factored into the analysis.

According to survey results, a lack of qualified candidates is the single largestbarrier to attracting employees. Competing with high–profile companies,uncompetitive salaries and lack of career opportunities were also listedamong the top barriers. In terms of practices, a successful employee referralprogram was indicated as the most effective method for recruiting new staff.

The following table shows a summary of the top five most effective recruitment methods versus the five least used:

Employee referrals Job placement programs Internet advertising Post–graduate recruiting Search firms Tradeshows College recruiting National newspapers Professional associations and networking Professional association

publications

Retention practicesThirty–five percent of the employers have a formal retention program ofwhich 48% apply offer their retention program to high performance employees. Meanwhile, 37% of the companies report that the retention programs are only reserved for management. Only 4% of the employers applythese programs to all employees.

When asked which methods were the most effective at both attracting andretaining employees, 23% of employers pointed towards attractive pay andbenefits. Trailing second is opportunities for career advancement and development.

Top five most effective recruitment methods Least used recruitment methods

Weighted average

Compensation and benefitsWhile clearly attraction and retention of employees is of high priority, thissurvey suggests that companies can do a lot more by creating special attraction and retention schemes to gain greater leverage.

There is limited use of special mechanisms, other than base salary and annual bonuses, to attract and retain employees. Retention bonuses anddeferred bonuses are not popular in China and stock option grants do notnecessarily come attached with vesting schedule. Strategic use of benefits as atool to leverage the employer brand is rare. Consequently, there is room forimprovement in this area.

Our experience suggests that companies with good retention mechanismshave a clear edge over their competitors. The challenge is creating a ‘unique’edge which is not easily replicated by competition. It is essential to designschemes with the specific context of the company in mind and regularlyreview for effectiveness.

Career developmentAccording to a recent Mercer study titled, What’s Working™(a study that asksemployees their perceptions on attitudes towards work and overall engagement), one in four employees in China believes that they are not givensufficient opportunities for training and development to enhance careeroptions. Furthermore, few employees believe their organizations are doing agood job of developing people to their full potential. Only about one–half of allemployees in China surveyed indicated that their managers actively encourage them to participate in training opportunities.

When analyzing the results from this survey, the findings are striking whencompared to what employers report are the key factors in attracting andretaining the right workforce. The top two mechanisms reported by employersare pay and benefits and career development. Based on these two studies,there is a significant disconnect between what employers think they are providing and what employees are experiencing with regard to career opportunities and development.

Based on the results of the China Attraction and Retention survey, employersare using existing human resource systems–performance reviews, annual promotion cycles and pay–as proxy for true career management. Some organizations in China have realized that current career management effortsare not enough and have begun to reconsider their approach taking a moreholistic and strategic view of career management – what Mercer defines as a“Career Joint Venture.”

The Career Joint Venture modelThree critical success factors make this new career approach work:

(1) An organization needs to view career management from an integratedsystems perspective – that is to understand how compensation, benefit,staffing, development, and other HR programs work together to reinforcepositive or negative career development patterns.

3

Top five methods For attracting and retaining Number of respondents

Attractive salary and compensation/benefit package 23%

Opportunities for career advancement and development 19%

Meaningful and creative work 7%

Unique organizational culture 7%

Company location 3%

(2) Career management needs to be seen as a broader change–managementeffort. There is a significant investment required in shaping andchallenging entrenched views, beliefs, and attitudes of leaders, managers,and employees about careers.

(3) The firm must understand and clearly communicate the components of asuccessful career management system as well as the expectations andresponsibilities of each joint venture partner.

The Career Joint Venture includes:

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5

Turnover rates

Turnover rate by employee category

It is clear that turnover within senior management positions is lowestamongst the four employee categories, with 63% of the participantsresponding within the <5% category.

Departments accountable for employee turnover Of all the departments, Human Resource (75%) is perceived to bear the

highest responsibility over employee turnover. In the 2005 research,however, most HR departments claimed that they are not a contributingfactor to staff turnover.

Senior Management (31%) and Divisional Management (27%) are the othertwo groups of people who are deemed to be accountable. The CEO, on theother hand, is not seen as having much accountability for turnover (6%).

Employee replacement cost as a percentage of annual remuneration Survey results generally indicate that the majority of companies do not see

employee replacement cost as highly significant. Close to 40% of respondents report that replacement costs for a senior manager level positions fall between 0% to 25% and the percentage of respondentsincreases for manager, professional and staff level positions.

Fifteen percent of respondents think that the replacement cost of a seniormanager is two to three times annual total remuneration, and only 2% ofcompanies fall in this tier for manager positions.

For professional and staff level positions, 18% of participating companiesreport that the replacement cost is one to two times for a manager positionand for general staff level positions the percentage of companies decreasedto 11%.

0

20

40

60

80

100%

75%

9%

63%

44%

32%

31%

31% 38

%

60%

54%

77%

42%

Employee turnover accountability

Turnover rates by job category

<5% 5 - 10% 10 - 20% >20%

Employee replacement cost as a percentage of annual remuneration

0-25% 25-50% 50-100% 100-200% 200-300%

Changes in turnover rates compared to the previous year

Increase Same Decrease

15%

12%

10%

23%

17%

13%

Human resource

department

Senior management

ManagementDivisional

management

CEO Professional Staff Others26

%57

%17

%

30%

23%

31%

24%

27%

27%

40%

46%

20%

25%

25%

30%

20%

27%

31%

37%

6%

26%

9%18

%

4%

17%

7%

17%

11%

7%5%

3%

3% 3%

Change in turnover rate compared to the previous year It is apparent that turnover for professional positions has gone up

compared to last year, with 54% of companies reporting an increase. For senior management positions, the majority of participants (74%) report

that turnover remains the same or decreased compared to last year and26% claim an increase.

For management and staff level positions, there is no clear indication dueto an even distribution of companies in each of the three response categories.

Employee tenure and turnover

Survey results show that employees with one to two years of experience arethe most unstable group, which comprises around 44% of the wholeturnover population.

There is also a clear indication that employees with five or more years ofservice are likely to be very stable.

Employee age and turnover

Employees within the age group of 25 to 35 years have shown the highestturnover rate. They comprise 87% of the whole turnover population.

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7

Compared with the last year’s figure (79%), employees within that age grouptends to be most volatile. Employees below 25 years of age are also reportedas an unstable group, which comprises almost 10% of the whole turnoverpopulation.

Top 10 departments with the highest turnover

Survey results show that sales, manufacturing and engineering are the topthree departments with the highest turnover rate. Not surprisingly, thesejob categories are also in greatest demand in the market.

With more companies emphasizing on corporate compliance, supportingfunctions like HR and Finance are hot positions as well. Research &Development department is also listed due to more R&D functions movingto China.

Techniques used to understand employee turnoverAll companies are interested in the reasons behind employee turnover andmost companies (87%) use the exit interview process to learn more.Twenty–six percent of participant us industry benchmark information, 25%use regular internal one to one interviews and 21% use regular internal survey. Some companies (16%) start to pursue external consulting services tounderstand causes of turnover.

Effectiveness of the techniques used

Exit interviews and regular one–to–one interviews are reported to be more effective methods in helping to understand why employee leave. Interestingly,75% of the participants reported that the industry benchmark information canonly help to a moderate degree and, while only 16% of the employers useexternal consultants to help diagnose turnover causes, they report most satisfaction at 25%.

8

0

20

40

60

80

100 %

AverageRemarkable

6%

51%

11%19%

42%

75%

10%

25%

47%43%

15%8%

67%

Little

Exit interview Regular internalone-to-oneinterview

Regularinternalsurvey

Benchmarkwith industry

63%

19%

Externalconsulting

service

Attraction practices

Companies with a high profile or good employer brand seem to have an easier time in attracting candidates. This intangible asset scores high inattracting talent compared to companies with a low profile or little marketawareness, which may result in paying high premiums in order to compete.

Major barriers in attracting employees

The largest barrier for organizations in attracting employees is lack of qualified candidates, followed by competition against high–profile companies.

Pay and career growth are, without surprise, among the top five barriers inattracting talent.

Number of days to fill in a position

Overall, it takes 77 days to fill a senior management position, 61 days for amanagement position, and 48 days for a professional position.

For senior manager positions, the time it takes to fill positions is the longestin the pharmaceutical industry, followed by manufacturing.

The length of time needed to fill management positions appears to be relatively similar across all other surveyed industries.

Professionals in the pharmaceutical industry require the longest duration tofill in followed by the auto industry.

9

Effectiveness of various recruiting techniques

10

0 20 40 60 80 100 120

34% 45%

22%

30%

9%

66%

Employeereferrals

Networking(professional,informal)

Search firm:Contingency search

Search firm:Retained search

Temp-to-hirecontractors

College recruiting

Post-graduaterecruiting

26%

%

7% 7%

59%

6%

57% 6%

19%

25% 46%

7%13%Professionalassociation

publications

7%

13%

Moderately effectiveVery effective Do not useNot effectivePlanning to use in future

12% 6% 17% 6%

54% 14% 1%

38% 25% 2%

29%

43% 13%

13%9%7%

4%

3%

1%

0

20

40

60

80

100%

28%

55%

3%

7%

20%

10%

10%

21%

3%

1%

27%

27%

32%

4%

14%

39%

59%

7%11%

49%

6%

28%34%

12%

6%

17%

3%

37%

37%

6% 9%

7%

74%

16%

13%

67%

9%

22%

7%

15%

38%

10%

Jobplacementprograms

Job/careerfairs

Tradeshows

Newspaper:National

Newspaper:Local

Internet ads:Homepage

Internet ads:Prof. body's

page

Internet:Fee for

service site

Internet:College-related

webpage

Moderately effectiveVery effective Do not useNot effectivePlanning to use in future

Top five “Very effective,” “effective” and “ineffective” techniques

Based on the survey results, employee referrals, retained and contingencysearch, internet advertisement and college recruiting are most effective inrecruiting employees.

It is interesting to note that traditional recruitment channels such as newspaper and job fairs are considered the least effective.

0 10 20 30 40 50 60 70 80

34%

80%

Employee referrals

Seach firms/Retained search

Internet ads/professionalBody's page

Employee referrals

Networking (professional,informal)

Search firms/Retained search

Job/career fairs

27%

%

74%

74%

21%

13%News paper national

Top five "very effective"techniques

30%

22%

79%

71%

68%

17%

26%

14%

Search firms/Contigency searchCollege recruiting

Search firms/Contigency search

Internet ads/fee forService site

Trade shows

News paper local

Internet ads/Homepage

Top five "effective"techniques

Top five "ineffective"techniques

11

Compensation and benefits practices

Generally, the results indicate that cash is still the prevalent form of compensation for employees in Greater China. Survey data show that whilegeneral employees salaries are minimally benchmarked to local industry market median, it is not uncommon to see top–quartile base salaries at seniormanagement level. For the HR manager, this means spiraling compensationbudgets, as well as labor costs, and an unanswered question whether productivity is also increasing.

With an eye on cost, companies will be under increased pressure to havewell–defined performance management and measurement systems in placeto better tie in performance. In fact, the survey indicates that companies areclearly factoring in pay for performance as a complement to moderate cashcompensation. Although management discretion still plays a role in salaryincrements, increasingly companies are looking to base such decisions onindividual performance. Competency–based pay systems are also gaining popularity, whereby competencies are referenced in salary increment decisions together with market competitiveness analyses.

Another key finding is that unique attraction and retention schemes are fewand far between. Data suggest that deferred bonus plans and retention bonusschemes are not commonly used in Greater China. Sign–on bonuses fare better; 40% of the companies surveyed use sign–on bonuses ranging from oneto three months of base salary. Most require recipients of the bonus to staywith the company for at least a year after sign–on or require payback.

On the other hand, equity–based plans are gaining popularity. One–quarter ofthe companies surveyed make stock grants to senior management employeeswhile more than a third operate a stock option plan. With growing numbers ofChinese companies seeking listing on foreign stock exchanges and the imminent new regulations from China Securities Regulatory Commission, theuse of equity–based compensation, especially as an A&R tool, should continueto rise in the future.

In addition, supplementary benefits can serve as a key differentiator.Currently, supplementary pension plans, saving plans, car and/or housing arenot commonly provided to employees in China. At the same time, benefitsscored highest amongst employee dissatisfaction in surveys carried out bycompanies internally. Companies that do provide supplementary benefits,such as car loans to employees, found that they are highly effective in retaining key employees.

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Compensation practicesPay level target positioning

Market median becomes the bottom line for salary positioning for all categories of employees.

Increasingly, the upper quartile appears to be the ‘preferred’ positioning forsenior managers (49% responses), management staff and professionals(37%). The talent war is forcing companies to adopt an aggressive stance onpay–a strategy which is proving expensive but necessary in today’s talentmarket.

Comparable market

When determining pay levels, there is a consistent trend to benchmark thelocal market.

For more senior positions, a comparison with other markets grow by industry for all employee levels.

0

20

40

60

80

100%

Local industry market

15% 14%

89%

11% 9%

86%85%91%

Other market

Senior management Management Professional Staff

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14

Criteria for salary increase

Performance is clearly the major criterion for merit increases reported by82% of respondents, followed by compa–ratio at 42%.

Obtaining increased levels of competence has grown in popularity with 37%of employers using it to uniform salary increases. Traditional methods ofbasing merit increases on the manager’s personal decision has taken amuch less important role as the last criteria on the list.

Frequency of reviewing salary The predominant practice is still to review salary once a year, with 93% of

the respondents following that practice. Futhermore, many employers indicated that this practice is part of a corporate compensation policy.

Benefit practices

Supplementary housing fund Only 24% of the participating companies provides supplementary housing

fund, with an amount of 15% of five years guaranteed cash. On average, 11% of the monthly base salary is paid by companies in

obtaining supplementary housing fund.

Supplementary fousing loan Very few companies (3%) offer a supplementary housing loans and their

eligibility is generally restricted to senior management or managementpositions.

On average, one–time loans for supplementary housing were reported atRMB 62,725 with a bank interest of 6%. The loan has to be repaid within fiveyears.

Companies offering stock options More than one–third (35%) of the participating companies offer company

stock options to certain levels of employees. Typically this type of plan is only offered to senior management followed by

management and professionals. Forty–one percent of the companies havevesting schedules of appropriately three years but some have a one–yearduration.

Eight percent of the participating companies offer stock purchasing plans toemployees and 25% offers stock grants. The eligibility is mostly restricted tosenior management followed by management staff and professionals.

Supplementary housing subsidy Ninety–seven percent of the companies say that they do not offer

supplementary housing subsidy to employees. However, among the 3% of companies that offer supplementary housing

subsidy, the eligibility is for all staff and the average subsidy amount is RMB 495 per month.

Employee savings plan Only 4% of the companies provide saving plans for employees.

Nevertheless, they are generally broad–based plans offered to all full–timeemployees.

These savings plan are generally in the form of a straight contribution fromthe company to an insurance company or directly managed by the company. The vesting ratio usually progresses from year to year starting at12.5% in the first year and increasing up to 100% in the tenth year.

Supplementary pension plan Twenty–one percent of the participating companies offer a supplementary

pension plan to employees with eligibility typically extended to all levels ofstaff.

More than 75% of these companies have defined contribution plans. 13%have hybrid plans consisting of both defined benefit and defined contribution and 6% have defined benefit plans.

Forty–four percent of companies manage their plan directly, 38% set uptheir plan via insurance company and 25% via the labor and social securitybureau. The vesting ratio progresses from year to year starting at 8.3% in thefirst year increasing to 52% in the fifth year and 100% in the tenth year.

Eighty–six percent of participants indicate that the reason for setting up asupplementary pension plan is retention and motivation, while 57% saythat it is for retirement protection and 27% for attraction of new staff.

Companies offering car purchasing loan Only 7% of the companies offer loans to purchase cars. These loans are

provided largely to senior management and sales managers and arerequired to be paid back within five years.

Car–related benefits are even more atypical compared to housing. However,companies that provide car loans claim that they are a great retention tool.

Companies offering car purchasing subsidy Only 7% of participating companies offer subsidies to purchase cars. Some

companies offer this to employees who reach a certain tenure, but themajority restricts this to senior management and management levelemployees.

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16

Effectiveness of perks and supplementary benefit

All participants express that the effectiveness of supplementary housingloans is moderate but that supplementary housing subsidy is effective inemployee retention.

Of all the benefit plans, car loans rank highest with 50% of respondentsclaiming that it is greatly effective.

Bonus practicesTarget bonus – Amount of company’s annual target bonus plan as a percentage of annual base

Most companies have competitive annual bonus schemes. Sixty–three percent of respondents provide senior management employees with a target bonus of at least four months pay annually, while 62% of respondentsoffer staff level employees with at least 5% annual target bonus opportunity.

Almost all respondents distribute bonuses on the basis of performance.Approximately 25% complement bonus decisions with supervisors discretion and competency assessments.

On average, the target bonus for senior management is 22.8% of annualbase salary, 18.5% for management, 13.7% for professionals and 12.9% forstaff.

0 20 40 60 80 100 120

12% 24%

50%

50%

10%

26%

Supplementaryhousing fund

Supplementaryhousing loan

Supplementaryhousing subsidy

Saving plan

Supplementarypension plan

Car purchasingloan

Car purchasingsubsidy

100%

6%%

41% 12%

100%

50%

30% 60%

50%

40% 60%

19%29%Stock pans

12%

19%

SomeLittle GreatModerate Don't know

Bonus triggering criteria The top three criteria for bonus payout are performance (96% of

respondents), supervisor’s personal decision (27% of respondents) and competency attainment (25% of respondents).

Deferrable bonus

On average, the grant cycle of deferrable bonus is 3.6 years, and the maintarget group elegible for a deferrable bonus is high performers (56%).

Other target groups include top executives and management level employees, sales staff and employees involved in specific projects.

On average, the amount of deferrable bonus is 28% of annual base salary. The basis for granting the deferrable bonus is mainly individual

performance and sales targets.

Sign–on bonus Forty percent of participating companies offer sign–on bonuses, however,

the entitlement is often limited to a target group of employees. Twenty–three percent of these companies restrict entitlement to senior

management staff, 28% include management employees, 17% include professional employees and only 11% include all employees.

These bonuses typically range from one month to three months salary. The maximum bonus paid to the Management and Professional employees is2.75 times their monthly salary at the Senior Management level and thesign–on bonus stretches to a maximum of three months salary.

The length of time an employee must remain with the company to avoidrepayment penalty is generally one year although a few companies haveput in a two–year restriction.

Retention bonus Nearly one–third (29%) of participating companies offer retention bonuses. These companies typically offer this type of bonus to employees who

complete a certain period of service (supported by 60% of respondents).Some companies have implemented retention policy for senior management and high–performing individual.

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Intent of establishing a deferrable bonus

The main intention of establishing deferrable bonus is to motivate high–performing individuals as revealed by 78% of participating companies.

Other popular reasons include targeted retention (67% of respondents) andlong–term growth (44%).

Effectiveness of bonus schemes

Overall, the use of sign–on bonuses is moderately effective attraction tool,with almost half of the companies (48%) responding in that category.

As a retention tool, both the deferrable bonuses and retention bonuses are moderately to greatly effective. Forty–four percent of companies say thatdeferrable bonuses are moderately effective and 32% claims they are veryeffective. For the retention bonus, 43% thinks that they are moderatelyeffective and 29% believe them to be very effective.

Career development practices

According to a recent Mercer study entitled, What’s Working™(a study thatasks employees their perceptions about their attitudes towards work andoverall engagement), it was found that one in four employees in China believethat they are not given sufficient opportunities for training and developmentto enhance career options. And, few employees believe their organizations aredoing a good job of developing people to their full potential. Only about onehalf of all employees in China surveyed indicated that their managers activelyencourage them to participate in training opportunities.

These findings are striking when compared to what employers think are thekey factors in attracting and retaining the right workforce. The top two mechanisms reported by employers are pay and benefits and career development. Based on these two studies, there is a significant disconnectbetween what employers think and what employees are experiencing withregard to career opportunities and development.

Employees have regularly indicated the value and importance of careerdevelopment opportunities as a key driver of satisfaction, yet employershave not kept paceOpportunities for career achievement and development were among the topfive factors listed by survey respondents as a key method in attracting andretaining employees. Approximately 20% of the respondents indicated that itwas the single biggest factor in keeping talent. However, based on data analysis, companies have not designed or implemented the required tools orprocess necessarily for succeeding with career management practices. Only47% of the companies have formal and agreed career development plans foremployees and yet, 65% think that formal career plans are effective or veryeffective as an attraction and retention mechanism. The response was slightlyhigher when looking an informal and individualized career plans, which 51%of companies indicated they have. Only 11% have career development plansfor high–potential talent and the rest are at risk groups (for instance, sales,given their high turnover rate). Approximately 50% of the respondents formally discuss career development once per year typically during the appraisal process.

Only 5% of the companies indicate involving senior management in careerdevelopment conversations.

The most widely used career tools are seen as ineffectiveProfessional and leadership training programs which are the most frequentlyused seem to be only moderately as an effective method for retaining theworkforce.

Approximately 60% of the companies consider this method to have some orlittle effect. Meaningful and challenging work was slightly better as a retention tool.

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The most effective method was overseas assignments, but it is currently usedonly by 42% of the organizations. Succession plans are being used by 42% ofthe companies, but only 23% rate it effective.

Which career tools are used and how effective are they?Investment is occurring within the management–level. Is it paying off?Management–level employees tend to benefit from more hours of trainingthan any other job category. Over 50% of the companies provide more than 40hours of training to management at an average of 35 hours per year for eachemployee. The management–level employee also has most access to education assistance (42%), overseas training (65%), and overseas job rotation(33%).

According to our analysis, the management–level employee also has the lowest turnover among the four categories of staff including senior management, management, professional and staff. The data also indicate that31% of the organizations have seen a decrease in this category of staff. Andwhen it occurs, organizations have indicated that turnover of management isat a manageable 0% to 10%.

Professional level staff are under higher risk of retentionIn general, professional level employees are leaving organizations faster thanany other level.

Career tool UseReported

effectiveness

Training programs 90% 39%

Meaningful and challenging work 65% 41%

Job rotation 54% 37%

Individualized career development plans 51% 56%

Established succession management plans 46% 23%

Overseas assignments 42% 59%

Mentorship programs 26% 25%

About half of all companies have experienced turnover between 10% and 20%,which is much higher than the other levels. And 54% indicate turnover hasbeen increasing within the professional–level category.

Professional staffs are provided with a moderate amount of training anddevelopment investment in terms of time and money (close to overall average). Only 42% provide additional employee assistance for advanceddegrees, however.

How much training time is allocated to each category of staff per year?

Overseas training and job rotation remain popular and attractive programsin the China labor market Ninety–one percent of the companies provide overseas training and 37%

providing overseas job rotation. Overseas job rotation is usually provided tomanagement employees, high–potential employees, professionals andresearch and development employees.

About 60% of the companies perceive overseas assignments to be highlyeffective as a tool in attracting and retaining employees. Anecdotally,overseas assignments are playing an important role in differentiating bestemployers from their key competitors other factors being equal.

Service bonds are not a preferred method of retention 50% or fewer organizations require signing a service bond as part of an

employee retention tool when sending employees on overseas training orjob rotation programs.

TrainingNumber of hours per year the company offers training

The average number of hours training provided to various job categories

Senior management Management Professional Staff

31.5 hours 34.8 hours 31.7 hours 27.7 hours

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Organization spend on training per employee in 2005 Sixty–four percent of the companies spend around RMB 4,000 each

employee for training annually. 23% spend between RMB 4,000 – 8,000 andonly 7% of the companies spend above RMB 8,000. On average, RMB 4,415 isspent on each employee annually.

The companies total annual training budget in 2005 was on an average 4.8%of the total annual payroll.

Education assistance plan (EAP)Company offers EAP

Sixty–six percent of the companies offer education assistance plans to themanagers. The majority of the companies (78%) reported that EAP is offeredto top management and management only, while 17% of the companiesreported that professional employees are also eligible.

EAP programs require employees to sign a service bondHalf of the companies require employees to sign a service bond for EAP programs. On average, a service bond of 19 months is required if the EAP costis from RMB 8,500 to 45,000. A service bond of 33 months is required if theEAP total cost reaches RMB 120,000.

Career developmentCompany offer employees mentorship programs

Nearly one–third of the companies offer mentorship programs to help define and support employee career development. High potentials and keytalents are the main groups benefiting from the program. Most of companies choose senior staff from other business lines, not direct managers, as a mentor. The HR department and management committeeare responsible for mentorship nominations based on the competency gapanalysis and areas for development.

Company communicate about career development opportunities Eighty–two percent of companies reported that they take steps to

periodically communicate with employees regarding their career development opportunities. They largely communicate through the performance appraisal channel (40%), followed by HR communication andface to face discussion.

Formal and agreed career development plans for employees

Approximately 50% of the companies provide formal and agreed career development plan to high potentials and key talent.

Company offer overseas job rotation More than one–third of the companies offer overseas job rotation. Among

the various job category, management employees are most likely to be eligible for overseas appointment, followed by high–potential employees,professionals and R&D. Typically the job program will be for a period of oneyear and it will be largely done at headquarters (49%), followed by other sibling companies (46%); a very few will be under rotation with regionaloffice.

Signing a service bond is preferred by only 48% of the companies for participating in job rotation and 52% do not prefer signing a service bond.On an average the service bond will be for a period of 2.75 years.

Effectiveness: Career development plans as an attraction and retentionmethod

Nearly 65% of the participants recognize that career development plans arean effective tool to help retain employees.

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Promotion review

Sixty percent of the companies review the employees for promotion once ina year. Nineteen percent of the companies review employees bi–annuallyand 6% review once every in two years. At some companies it depends onthe vacancies available, department plans, personal performance and management discretion.

Average interval for promotion

The average interval for promotion to the next level among management is3.2 years; professionals require 2.3 years and staff 2.0 years.

Promotion review criteria

The main criteria to archive promotion are individual performance,capabilities, technical expertise and working experience.

2.0

2.5

3.0

3.5

2.3

3.2

2.1

Annually Professionals Staff

Supporting mechanisms

Companies face shortage of talent in the China marketWith influx of reported foreign direct investments of US$1billion into Chinaevery week, the labor market faces a shortage of skilled employees at all levels. And our survey findings confirm this – “lack of qualified candidates”was reported as the largest barrier facing companies in attracting newemployees. Furthermore, as many companies tap a more global talent pool,including neighboring countries, to resolve skill shortages, they are faced withan even bigger challenge – how to compete with high–profile companies thatcan not only provide competitive packages but also have attraction and retention systems in place internally? We expect the intense competition toboost attraction and retention policies with companies operating in China thenear future.

360 degree feedback practicedMore than half the companies provide employees with opportunities to ratetheir managers. While this may or may not indicate the practice of 360 degreefeedback, it is certainly a step towards open communication between managers and staff. In fact, research shows that improving communicationbetween management and staff was one of the most effective non–monetaryretention tools according to survey participants.

Working environment tops employee satisfactionSeventy percent of employers indicate that employee satisfaction surveys areregularly carried out at least once per year. One–third of the respondents indicated that they survey employees twice a year. According to this survey,employers report that their employees feel most satisfied with their workingenvironment followed by the organizational culture and employee benefits.Most companies also report organizing activities to foster teambuilding atleast once annually and surprisingly 20% indicated that they undertake someform of teambuilding at least five times a year.

The average working hours per week is in the manageable range of 40 – 45hours.

Recognition tools are all the rageCompanies in Greater China use a variety of recognition techniques to showappreciation and encourage certain characteristics in their employees. Forinstance, good performance is recognized with salary increases and promotion opportunities. Competence is rewarded with promotion and training and hard work receives verbal praises. Loyalty is rewarded with long–service awards.

Average working hours per week by staff level

Senior management Management Professionals Staff All employees

44.7 43.2 42.4 41.6 41.9

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Working environmentAverage working hours per week

The working hours for all employees per week are 41.9 hours and on an average, the working hours among the various job category is same with a difference of one hour per week. The average working hours of senior management are longer compared to all other job categories, with 44.7hours per week, and the least with staff level, with 41.6 hours per week.

Employee assistance programs (e.g. psychological counseling)

More than three–fourths of the companies do not offer employee assistanceprograms. Of the 16% that do, all the employees are eligible without any distinction with regard to job category.

Frequency of team–building activities

Ninety–two percent of the companies organize teambuilding activities likepicnics, team sports and weekend–aways. Thirty–seven percent of the companies reported the frequency for all these activities is on an annualbasis. Others state that they conduct the team building activities on eitherbi–monthly, quarterly, half yearly or even five times in a year.

Frequency of employee satisfaction survey

Companies report conducting regular employee satisfaction surveys, with56% undertaking surveys annually and 33% undertaking this semi–annually.

Areas that employees most and least satisfied with

Employees are largely satisfied with working environment, while it is reported that employee benefits are the least satisfying.

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RecognitionCharacteristics that organizations value most in employees

Individual performance was held as the most desirable employee characteristic, followed by competence and loyalty.

Nearly all of the companies reported having a formal performance management system and more than two–thirds of the companies havesome form of competency–based evaluation system.

Techniques used to reward employee efforts

Salary increase and promotion opportunities are used to recognize theemployee good performance.

Promotion opportunities and training opportunities are offered to recognizehighly competent of employees.

Verbal praise is the technique most frequently used to recognize employeeswho demonstrate a hardworking attitude.

Verbal praise, training opportunities and benefits priority are used to recognize long service.

More than two–thirds of the companies provide long–service award in theform of cash, honor certificate, gifts, etc. Monetary awards are offered to service years of five, 10 and 15 years. Some companies reported paying anadditional one or two months basic salary as an award. Non–monetaryawards include certificates, company ties/scarf, gifts, gold coins, companyproducts, medals and service award gift, etc.

Non–monetary rewards used to motivate and recognize employees

Open verbal praise is widely used to motivate and recognize employee.Election of ‘best staff’ or ‘star staff’ has been widely adopted and reportedwith high effectiveness for employee recognition.

Leadership and managementSelection criteria for management employees

Survey results indicate that there are five major criteria for selecting management employees. Leadership capability ranks at the top, followed bybusiness expertise, management skills, working experience and competency.

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Opportunity for employees to rate managers

More than half of the companies provide employees with the opportunity to rate their manager, increasing understanding and feedback.

Methods and effectiveness of attracting and retaining employeesCompensation Effectiveness of compensation methods in attraction and retention

Competitive pay is the most commonly used method in compensation toattract and retain employees, followed by performance–based pay, specialbonuses and incentives.

Competitive pay and retention bonuses are reported to have the greatesteffectiveness among compensation techniques. Currently only 32% ofemployers are using stock options/purchase plans but report that theireffectivess varies between very effective (12%) to moderately effective (54%).

Benefits

Among benefit items, health and insurance and teambuilding activities arethe most popular methods in attracting and retaining employees, followedby a great working environment.

0

20

40

60

80

100%

Great Some

Competitivepay

Effectiveness of career tools in attraction and retention

Compensation

Little Don't know

60%

38%

78%73%

48%

45%

4%

54%

38%

38% 38%32%

54%

12%

52%

7%

26%

4%

62%

19%

15%

30%

60%

10%6%

Performancebased pay

Special bonusor incentive

Performanceplan

Stock option/stock purchase plan

Retentionbonus

2%

2%3%

0

20

40

60

80

100%

Great Some

Healthcare& other

insurances

Effectiveness of benefits in attraction and retention

Benefits

Little Don't Know

33%

56%

83%82%

60%

52%

3%

48%

41%

16%

31%

6%

25% 24%

37%

14%

59%

58%

33%

9% 17%16%

46%

47%

16%

25%

25%

17%4%

2%

29%

19%10%

33%

33%

22%

11%

Team buildingactivities

A great work

place/workenviroment

Health and fitness

plans/wellness programs

Time-off Flexible work hours/

arrangements

Familyfriendlypractices

Subsidizedloans

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A good work environment is reported as the most effective methods amongbenefit items to attract and retain employees.

Effectiveness of benefits in attraction and retention A good work enviroment is reported as the most effective method among

benefit items to attract and retain employees. Teambuilding activities is reported as one of the most popular methods

used, while only 29% of companies expressed that its effectiveness varies asa retention tool.

On the other hand, flexible work hours is offered by only 24% of the companies, but those that do use it report that it is an effective tool 37%.

Career managementEffectiveness of career tools in attraction and retention

Professional and leadership training programs are reported as the mostpopular methods used in attracting and retaining employee by 90% of thesurveyed companies, followed by offering of meaningful and challengingwork from 65% and job rotation opportunities (54%). Individualized careerdevelopment plans are reported to be offered by 51% and are thought to bevery effective by 56% of those who use them.

Sixty percent of the companies reported that providing overseas assignment is highly effective in attracting and retaining employees,followed by the offering of individual career development plans by 56% ofthe companies.

Support mechanismsEffectiveness of career tools in attraction and retention

The most popular support mechanisms that are used to attract and retainemployees are improved communication between management and staff,non–monetary rewards and recognition and improved performance management systems.

Improved communication between management and staff are both themost popular tool and most effective tool as reported by the majority of thecompanies. Tools that are seen as effective, while less popular, include providing education to management on how to retain employees, increasedaccountability of managers in retaining employees, and employeesincreased involvement in company decision–making.

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Case studies for employee effectiveattraction and retention

Mercer conducted interviews with senior human resource professionals fromleading organization operating in China. The following case studies showcasehow some organizations have fought and won the battle with either attracting talent, retaining talent, or both.

Case study A:

ABB – Recognized as a “best employer” among staff

ABB is a global leader in power and automation technologies that enable utility and industry customers to improve their performance while loweringenvironmental impact. The ABB Group of companies operates in around 100countries and employs about 105,000 people worldwide. Its main productsinclude power systems and products, automation products and processes,and robotics. With over 10 years in the China market, ABB has more than9,000 employees working in China. During an interview with Yu Han, Head ofHR, China and North–Asia, we learned ABB’s successful approach to managingboth attraction and retention of talent.

Culture: A key to attraction and retentionAccording to Yu Han, it is ABB’s attractive culture that ultimately makes ABBan appealing place to work. “Care for People – Care for Performance – GrowPeople – Grow Business” is a key human resource management principlewithin ABB’s China business. These words encapsulate the relationshipbetween ABB employees and the company. “Only when the business hasdeveloped can the company provide their employees with a broader careerdevelopment opportunity. Hand in hand together with the excellent work ofthe staff that contributes to our company's business growth achievements”states Mr. Han.

Another key factor that sets ABB apart is its business guiding principles.Introduced globally, “Responsibility – Respect – Determination” are the three business principles ABB Group uses to guide its business and staff. “Theseprinciples were designed to guide employees in their behavior towards eachother, our customers, our business partners, shareholders and the communities in which we live.”

Retention starts at recruitmentAs described by Mr. Han, ABB believes that the retention of talent startsbefore the hiring begins, during the recruiting process. The process is three–fold: to find qualified candidates, to clarify employee expectations andto find the appropriate fit for employees in the organization. “We have foundthat this is a very effective method to retain new employees,” he says.

Tapping the campus recruitABB places an emphasis on cultivating talent from within. Each year theyrecruit fresh college and university graduates and place them in front–linepositions, allowing new recruits the ability to grow with the company fromthe ground up. Implementing a “Stretch Assignments” program also providesnew opportunities for staff that are not fully qualified or who have not yet

exhibited the necessary knowledge, experience, or skills for higher–level work.

ABB continues to provide full pay to these high–potential employees, whilefurther strengthening their sense of recognition and belonging to the organization.

Compensation and benefits play mutual role in retaining staffIn the current market environment, attractive compensation and benefitpackages are still an important method in attraction and retention.

The difference is ABB not only provides competitive salaries but also putsgreater emphasis on benefits. For example, the company implemented a supplementary pension plan five years ago. “Although the amount is not toomuch, taking precautions and making accumulation can dismiss the worriesof staff later on,” describes Mr. Han.

Training and development helps to equip people managers with the right skillsABB believes that first–line managers are accountable for the retention of talent. The company provides a series of training courses designed to provide“just–in–time” training to targeted groups of managers.

The “New Manager Training” course was designed to help newly promotedleaders with the knowledge and techniques needed to manage people andwith the transition from individual contributor to manager. In the past fourto five years, more than 400 new leaders have undertaken the course.

“The Successful Manager” course was introduced to improve experiencedmanagers’ leadership and management capacity. ABB has invited foreignprofessors to give courses ranging from Leadership Development toOrganizational Behavior, and thus far, the program has been successfullyoffered four times. One hundred middle–level managers have been trained.

To build a better understanding of the corporate culture and humanresources policies and practices, ABB also recently introduced the "BetterPeople Managers Workshop.” The target audience of this program is first–line managers and human resource professionals and aims to improvepersonnel management capability. Using shared experiences and discussions, the focus of the workshop is on issues of common concern,like personnel policies and human resources management practicesbecause line managers play a crucial role in “attracting, recruiting,motivating, developing and retaining talent, as well as other aspects of the implementation of human resource strategy,” ABB finds this program veryhelpful in managing and retaining the workforce.

According to Mr. Han, the combined effects of the various programs abovehave contributed to a relatively low turnover rate over the past few years.According to many, these programs and others like them have contributed toABB being recognized as a “best employer” among the staff.

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Case study B:

The three C’s of attraction and retention: Compensation+ Careers + Culture

Ranked 89th in the 2006 Fortune 500 list of America’s largest companies,Coca–Cola turns 120 this year. With more than 400 brands in 200 countriesand approximately 50,000 employees worldwide, the Coca–Cola Companyowns four of the top five soft–drink brands in the market (Coca–Cola, DietCoke, Fanta, and Sprite). We met with Jonathan Taylor, HR Director for China,to learn how the three C’s work together to create a compelling place to workin China.

Compensation + Career + CultureAccording to Mr. Taylor, it is the unique combination of compensation, careersand culture that play a big role in not only attracting staff to join Coke butalso serves as key retention tool. The programs work together to create acompelling place to work and grow.

CompensationCompetitive compensation and benefits are very important to attract talent inthe China market but it is only one part of the equation. “We set and executeincentive policies and plans with consistency and transparency, treatingemployees fairly through a wide range of recognition and reward vehicles. Itis an effective way to retain people,” states Mr. Taylor.

Coca–Cola provides a competitive cash package with a compensation philosophy set at 75% of market to ensure that they attract and retain thebest China has to offer to support the business. In addition to competitivepay, they provide a comprehensive benefits menu comprising of housing andother benefits to meet the needs of the diverse workforce that makes upCoca–Cola China.

Careers Globally, Coca–Cola has strong human resources systems in place and Chinahas been able to leverage these programs with much success. The organization pays special attention to staff personal development thatincludes goal setting for all staff.

Two days every year are set aside for senior managers and departmentleaders to review each staff member within their organization to whichhelps to effectively manage talent and peoples careers as they progressthrough the Coca–Cola Company.

As part of their development, some employees participate in overseesassignments allowing them to develop in different markets and to bringthose best practices back to the China Division which as well as challengingtheir technical skills also allows them to broaden their cultural skill set –this is one of the many benefits of working in a international organization.

An additional continuing education and career enhancement opportunity isalso provided for some employees within middle management.

Coca–Cola each year sponsors four employees to participate in an EMBA (Executive Master of Business Administration program) at one of China’s topbusiness schools. Candidates are selected by program committee of compromising of the division president function heads.

To help attract the right employees, a corporate employee brochure hasbeen developed to showcase what it is like to be a part of the Coca–Colaorganization in China, the company’s vision, culture, values and testimonies of people who work in the company in relation to their careerdevelopment with the company.

Culture Coca–Cola uses the strength of its external brand to both attract potentialcandidates and retain their existing workforce. Through a number of mediathe company seeks to communicate the unique company culture to potentialnew hires (like high–energy, global brand, valuing diversity, etc.).

“Our culture is one that defines us an organization where all employees are treated fairly, respecting the uniqueness of everyone and the value they bringto Coca–Cola. We teach managers to lead by example and ensure we provide afun place to work with events out of the office ensuing that employees andtheir families get to feel the ‘Magic of Coca–Cola – The World’s Number OneBrand’,” says Mr. Taylor.

According to Mr. Taylor, it is short sighted for companies to just use pay toretain talent. “When we respect people, provide them with careers, make it afun place to work with fair compensation, you have a workforce who want tostay with you and build a career.”

“Being ‘The Employer of Choice’ in China is a constant journey and one wetake seriously, this does not only define who we are as an employer but whatwe do for the societies we operate in. Each department/region within theDivision has a strong commitment to Corporate Social Responsibility andactively engages in volunteer work to support both the environment and theunderprivileged population within China society,” he adds.

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Case study C:

Career management makes the difference at Danonebiscuits

Groupe Danone is a global producer of food products including dairy products, biscuits, beverages and bottled waters, including Wahaha in China.The Paris–based company reported sales of $16 billion in 2005 and employsapproximately 88,000 worldwide.

Mercer recently met up with Zhang Xiangdong, HR Director of ShanghaiDanone Biscuits Foods Co. Ltd, a subsidiary of Groupe Danone, to discusswhat sets Danone apart from its competitors when it comes to attracting andretaining staff.

According to Mr. Zhang, one of their talent challenges is to keep young,educated and hard–working managers engaged and challenged amidst thegrowing attractiveness of big titles and bigger pay packages that the externalmarket seems to be offering. “30 to 35–year–old managers with MNC experience are a very special group. They have undertaken the key roles inthe organization. However, their desire for fast career advancement is ‘mission impossible’ in the western mature market,” states Mr. Zhang. Giventhe external “demand over supply within the labor market, there are lots ofattractive job hopping opportunities…” How Danone retains this group ofyoung managers is what sets them apart from the market, but it has provennot to be an easy task.

Career retention systemMr. Zhang believes that retention starts from recruitment. According to him,Danone is not looking for the best candidate but for the right candidate,someone who is the best fit for the organization. In this case, the best fit doesnot mean people who have the same personality or educational backgroundas existing employees but rather, best fit describes a buy–in to the Danonevalue proposition. They are looking for capable people who have acommitment to grow with the company. Danone’s own research has revealedthat internally developed people are also more stable on average than thosewho join from the market.

For this reason, Danone has been investing in growing talent from within andfocusing on employee career development, particularly for some supervisorypositions and all manager level positions.

How the plan works: Each manager has the responsibility to create an individual development

plan with each employee covered in the program. The plan includes thedesired next position, the employee’s strengths and weaknesses andactions for bridging the gap.

The plan also includes promotion opportunity, job enlargement,enrichment and job rotation. For example, lateral moves between field salesrepresentative and trade marketing positions are encouraged. Increasedresponsibilities within the same role are also given. For example as theorganization grows, the opportunity for a sales representative to manage300 vs. 100 stores also grows.

International assignments are also available.

This kind of development plan relies on the participation of HR line managers and other offices to ensure real execution of the plan. The resourcedevelopment function of Danone’s HR shared service center in China isanother active player in the scheme. This approach requires both HR and theline manager to really make the individual development plan system work.While the pressure to achieve these plans is great, Mr. Zhang thinks that it is necessary and it is worth the investment.

The role of compensationThe role of compensation plays an important role in the overall total rewardspackage but it is not the predominant mechanism for attraction and retention. Globally, Danone’s compensation strategy does not include the useof aggressive market positioning but rather it pays attention to internal equity and focuses on long–term career development opportunities instead ofshort–term compensation vehicles.

Balancing both long–term career development rewards with the short–termneed to be aware of market conditions seems to be a winning proposition forDanone. According to Mr. Zhang, both HR and line managers need to beobservant and sensitive to identify the early symptoms of key employeesmorale change and take early actions to prevent it from escalating.

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Case study D:

Dow Chemical – Uses phantom stock to retain its workforce

Industry background With the rapid growth of the economy, the demand for energy and raw materials has increased significantly across China. In 2004, the annual outputvalue for the Petroleum and Chemical Industry had reached RMB 2,425 Billion,equal to 15.8% of all industry output value and profit of RMB 288.9 Billion,equal to 24.6% of all industries.

Recognizing the importance of foreign technology and investment, the government has been successful at encouraging foreign companies to buildresearch and development centers in China, which has resulted in demandfor talent outstripping supply. Companies have faced a fierce talent war, with85% of the companies choosing to pay in the upper quintile to attract andretain professionals and managers. In 2005, the chemical industry pay trend–line was among the highest and the average turnover rate hoveredaround 15%.

As the main player in the market, Dow Chemical had a different story: successful talent programs and lower turnover.

Dow accelerates growth in China Since 2004, Dow has accelerated its investment in China. A global informationcenter, global R&D center and share service center have been or are beingsetup to support both China and the regional market. In 2005, the chemicalindustry pay trend–line was among the highest and the average turnover ratehovered around 15%. Dow plans to hire around 200 more employees annuallyin the following five years.

“We develop together with the Company.” “It’s an easy slogan but it remainedunrealized for Chinese employee,” stated Lisa Zhang, Dow’s Human ResourceDirector of Greater China. After numerous attempts and a lot of hard work,Chinese employees can now share in the benefit of working for a Fortune 50company. Due to strict foreign currency regulation, Chinese staff were unableto share in Dow’s stock purchase plan, but that all changed recently. “Wemade it through three years of effort,” stated Ms. Zhang. “In the past, thestock performance information in the headline of our intranet means nothingto us. Now our hearts go up and down with it; we know our performance ties closely with this company,” a Dow China employee said.

Dow’s China management team started planning the stock purchase projectthree years ago. Its purpose was to integrate Chinese employees into the global family and allow them to realize the benefits of the company’s performance. “It’s the all about attitude,” Ms. Zhang expressed when describing their struggles to get the plan approved. Initially, the Dow HeadOffice rejected the project given the legal hurdles that would need to be overcome. The China team did not give up. With several rounds of negotiationand a well–designed feasibility study, including the legal, financial, and tax implications of the new plan, the team was successful. The board was persuaded and agreed to implement the stock purchase plan.

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Introducing phantom stockDow China has recently introduced what it is calling ‘Phantom Stock.’ Thetransaction occurs between Chinese employees and Dow, but the transactionrate aligns with the daily market. Employees are entitled to purchase thestock once a month using the company discount rate and to sell the stock atany time. The assumption is that the company’s financial cost is neutral withthe gains and losses realized by the employee. Dow can use hedge funds totransfer the financial risk. Dow uses this program as a major lever for retention as certain conditions apply, such as at least two years seniority withDow before being eligible to participate.

The Phantom stock purchase plan has been a big success. Globally,approximately 50% of Dow employees participate in the stock purchase plan,with 30% in Asia. In China, the participation rate is 75%. Ninety percent ofChinese employees purchase up to the ceiling, which is 10% of salary. In thepast 10 years, Dow’s stock value has increased USD 10–15 per share annually. The performance attracts Chinese employees very much. With theever–strengthening Chinese CNY exchange rate, the program can bring more benefit to Chinese employees.

Other benefit programs are also in placeIn addition to Phantom Stock, Dow also provides Deferred Stock and StockOptions. Introduced in 2003, a “Dow–ized” 401(k) program has also beenextended to Chinese employees.

Dow has introduced a variety of very compelling retention methods that havedelivered real results. “That’s one of the main reasons why Dow employeesengagement is always among the highest in the industry,” Ms. Zhangconcluded.

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Case study E:

Providing both competitive pay and employee development helps DuPont keep staff motivated

A history in ChinaDuPont is no stranger to China. Its history can be traced back to 1863 whenDuPont was doing business during the Qing Dynasty. In 1920, DuPont openedits first representative office in Shanghai and has been doing business inChina ever since. Its products serve diversified markets in the chemical,agricultural, food and nutrition, electronics, textile and automotive industries,to name some. The DuPont core values have remained unchanged for the past200 years: safety, environmental stewardship, ethics and respect for people.Integral parts of the DuPont heritage, these values and a commitment to sustainable development continue to guide DuPont strategic decisions andactions in China.

Providing competitive payWith a workforce of around 5,500 people, the question of how to attract andretain talent remains on the agenda. During an interview with Linda Jin,Compensation and Benefits Manager, DuPont China, she outlined the rolecompensation plays in helping to attract and keep employees. “DuPont has afair and competitive salary structure. Our compensation and benefits remainan average level of those few outstanding global companies. In the meantime,the HR department pays much more attention to communicating our philosophy with managers at all levels, in order to make them, and throughthem, their subordinates understand that the company would respect andrecognize everyone’s effort in making DuPont and its customers succeed,” sheexplained. “Compensation is not the most important factor to win employees’loyalty. I think people development opportunities and creation of a favorableworking environment are more important than salary package itself inattracting and retaining talents.”

Target development: Engaging employees through goal settingCoined as “target development”, DuPont has a program that focuses on, inlight of corporate objectives, setting personal career objectives and identifyingindividual’s strengths and areas for development based on feedback from theindividual and his or her peer groups. All new employees are required to participate in the program after their first six to nine months onboard. Theobjectives and benefits of this program include:

Communicating the corporate objectives of DuPont and set the linkbetween individual, team, and group goals.

Setting and confirming individual objectives and the relationship betweenpersonal achievement and company outcomes.

Undergoing individual an assessment to provide insight into individualstrengths and areas for development against corporate core competencymodel.

Developing a personalized career development plan with the specificactions to address any gaps identified in the assessment and the steps toachieve personal objectives.

After years of implementation, target development has become commonpractice at DuPont China.

Making connections to managers“Working environment is also a very important factor for peoples retention,”Ms. Jin emphasized. “Care and respect from the boss means a lot to employees because it will light your eyes and warm your heart.” At DuPontChina, ongoing communications between line managers and their subordinates is part of the culture. “You should feel free to knock the door ofyour boss whenever you feel necessary. The point is that you’re workingtogether with your boss instead of for your boss,” said Ms. Jin. “People willmake themselves at home when they get care, respect and love in their workplace.”

This is how DuPont manages the attrition challenge. “To attract and retainpeople is a comprehensive system requiring many other factors such asemployer branding, company culture enhancement, and etc. All we have beendoing is to make the system the common language and practice within thecompany,” said Ms. Jin. With the systems in place, attracting and retaining talent becomes less of a risk.

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Case study F:

A multi–pronged approach helps to address turnover atTyco Electronics (China)

With a workforce of more than 260,000 globally, Tyco employs 32,000 staff inChina, of which 29,000 are employed with Tyco Electronics China (TE China).The manufacturing conglomerate is organized into four main business segments: Electronics, Fire and Security, Healthcare, and Engineer Productsand Services.

Given its size, tackling turnover has become a full–time job. In the sales function alone, TE China indicated that it desires to hire between 20% to 40%new staff annually to keep up with growth and attrition. While turnovervaries between 10% for management staff and 16% for engineering roles, TEChina has experienced upwards of 100% annual turnover in operator positions in some of its China locations.

With such a significant impact on the business, TE has begun to get seriousabout tackle this looming business risk.

A four–pronged approach to addressing turnoverSystematic training programs Recognizing the importance of providing training and development to

employees in staff retention, TE China HR Shared Service has recently introduced a Training Guide and a new Training Policy for all TE China operations. The Training Guide aims to provide guidance to TE Chinaemployees for their career development as well as for work requirementsby business disciplines. In the Guide, training programs are provided asrequired or optional for employees by role families (sales/marketing,engineering, finance, etc.) and the levels of experience (entry, experiencedand developing early).

In one of its subsidiaries, TE China has introduced systematic training programs for all the levels of employees and it has been in place for years.Results achieved so far indicate that retention effectiveness is better at thislocation than others.

Leadership development More recently, TE China has introduced some new leadership development

programs focusing on the development and retention of leaders. The aim ofthe program is to develop potential leaders by providing the needed training and coaching. TE believes that the programs will not only benefitthe development and retention of its leaders but will also have an impacton creating a strong learning organization culture and therefore retainingits general staff. “In many cases, people join the company but leave themanagers,” states Kevin Kang, Director, Human Resources Shared Servicesfor TE China.

Talent management program To halt an escalating turnover problem within key functions, (particularly

Sales and Marketing, engineering positions, and supervisory and aboveroles), TE China has introduced a targeted Talent Management program.Started at the end of 2005, the program is aimed at reducing the businessrisk of losing key players within the target functions. Over 200 key staff inTE China have been identified and selected as key players. Theseindividuals will be offered more training and development opportunities aswell as a more robust compensation package targeting above local markets.The Talent Management program will be reviewed every six months toensure its objectives are met and key players pool is refreshed along thelines of business needs and corporate directions.

The program has been highly recognized by TE’s management. TE China’sHR Shared Service plans to extend the program to the overall TE Chinaoperations including all functional areas by the end of 2006.

Communication practices To check the pulse of what employees think and feel, Tyco also conducts an

employee survey to capture insights into all aspects of employees viewpoints about the company and their work. TE China’s HR SharedService also runs monthly reports for the plant General Managers and business unit leaders on HR practices covering all its over 18 operations inChina. In addition, its site HR has started to play a key role in regularlyorganizing and facilitating employee communications sessions.

With a multi–pronged approach for tackling staff turnover, TE China has seenencouraging improvements, while Kevin Kang indicated that “we’ve seen theline of sight and we are confident we can do it.”

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Case study G:

Money does not retain talent but culture does

Interviewed executiveDaisy Dai, formerly consultant of Accenture and HR VP of L’Oreal, is now thevice president of human resource and member of management board ofUnilever China. An experienced executive with a practical andright–to–the–point style, she summarizes Unilever’s retention issues during arecent interview: “For us, it is not a matter whether we can retain people;knowing who and how to retain is the real challenge.”

Retention systemAccording to Ms. Dai, Unilever has implemented most, if not all, of the toolsand methods that normal companies would tend to use to retain their people.“For most of MNCs like us, money is never a critical issue to retain good people. Culture is what really plays role in such a process,” she says. Amongits peers, Unilever holds a reputation of investing in its people. These investments vary from competitive compensation to training and development opportunities including a company sponsored EMBA program.However, Ms. Dai believes that money does not play a critical bonding effectin retention. “Alignment” is the most frequently used word by Ms. Dai when talking about the retention strategy of Unilever: “Retention is determined notonly by money, but more importantly by the degree of alignment betweengoals of the individual and corporate.”

Unilever China is looking for changeAccording to Ms. Dai, retention means never being afraid to give people anaccurate assessment of their work. Unilever is trying to promote a performance–driven culture that will encourage managers to give feedback totheir team members that contains both good news as well as areas forimprovement. She admits that it is not easy to nurture such a cultural changein a big organization like Unilever. “Each level of line managers has to realizethat evaluation of their people will not drive good people away. Instead, it willonly create a pursuit for excellence. Giving feedback should also be followedby coaching, passing knowledge, giving direction, support and opportunity topeople and therefore, alignment forms in the company. This alignment shallbe clearly built around company goals rather than personal loyalty.” Accordingto Unilever, the more people who have connections to an organization andbelieve in its goals and direction, the more unlikely it will be for them toleave. Ms. Dai is a strong believer in such an idea.

Unilever has begun and encourage its managers to stretch people by givingmore accountability, and more opportunity to be coached by senior executivein various projects, and by sending local talent abroad for overseas assignment. Such stretch, in turn creates connections to the company. As a company known for its systematic retention programs, Unilever China startedto focus on a more balanced approach to keeping their top talent. “The key to retention,” according to Ms. Dai, “lies neither in providing expensive trainingcourses a few times a year nor by being over–protective, which serves nothingbut to slow down the development. Rather, it is to give people vision, mission,opportunity and utilize their strength, stretch them reasonably and drivethem to exceed.”

HR is one of the key drivers of Unilever’s cultural change globally and inChina. One of the key elements of such change is a different point of view onstaff retention. Ms. Dai clearly realizes that, like in any other companies,cultural change does not happen overnight. “It takes at least three years forthose things to take place,” said Ms. Dai. When asked about the confidence ofretaining right people with a change of culture, she said, “I believe it willwork. I know it is not going to be easy. If I don’t think it will, I would not havebeen here. It is something worth trying.”

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Case study H:

A major oil company – Consistency and sustainablecommitment to employee development are key to staffretention

The majority of operations in the major oil company are carried out underthe auspices of joint ventures. They work in partnership with China's majoroil companies as well as partnering with a range of other industry players ata local level.

With ambitions to increase the number of Chinese leaders within the organization, the company is focused on recruiting and developing more localstaff. Through joint ventures and direct hire, the company has over 3,000 staffin China. Beijing, Shanghai and Guangzhou are the main centers of employment.

Consistency drives A&R successThe Vice President of Human Resources of the company in China believesthat the essence of implementing best–practice in attracting and recruitingtalent is consistency. “It’s not magic,” she says. “The programs require consistency and sustainable commitment to make them work.”

According to the Mercer survey, only 35% of companies have formal retentionprograms but over 60% believe that their organization needs to greatlyimprove their efforts in retaining talent. The company has actively managedthe attraction and retention programs at the business and country levels andover time, these are showing some positive results.

Brand is pivotal: All channels must be utilized to attract staffConsistent feedback from many organizations is that the companies brandplays an important role in the attraction of talent. Under this premise, as aglobally recognized brand, the company has a strong advantage in attractinginterested recruits.

However, the VP of HR in China explains that the company makes use of thevariety of recruitment channels to ensure that they continue to tap into thebest talent sources. “We do use multiple channels in recruiting talent. Thisincludes graduate recruitment from campuses as well as web–based advertisement postings, search firms and employee referral,” she said.

The High Potential program focuses on long–term development. It stretchesand challenges employees capabilities which create a motivating work environment. As well as training and study opportunities, the programincludes overseas postings and rotations through different parts of the business. This provides individuals with wider learning experiences and abroader understanding of business operations that they might not normallybe exposed to.

Nearly half of companies surveyed by Mercer in China offer overseas job rotations. Of those companies, nearly half again ask employees to sign a service bond – typically of between one and two years.

Coupled with the right kind of coaching and feedback, the High Potential program prepares employees to progress to significant leadership roles withinthe company. “And this encourages long–term loyalty to the Company,” saidthe VP of HR.

Money is not enough: Career development opportunities must be compellingThe VP of HR firmly believes that money is not enough to retain talent. Animportant driver to retaining talent at the company is their career development proposition. She stressed that employees are looking for a compelling story about their career opportunities with the company in China– it has to be much broader than just their compensation package.

“Our High Potential program has been grooming talented employees for thepast five or six years. Candidates for the program must have long–term development potential and are nominated by managers because of this manyof our leaders now come from within the company rather than as newrecruits. The program has a positive impact on retention of good talent,” sheexplains.

The High Potential program focuses on long–term development. It stretchesand challenges employees’ capabilities, which creates a motivating work environment as well as training and study opportunities, the programincludes overseas postings and rotations through different parts of the business. This provides individuals with wider learning experiences and abroader understanding of business operations that they might not normallybe exposed to.

Coupled with the right kind of coaching and feedback, the High Potential program prepares employees to progress to significant leadership roles withinthe company. “And this encourages long–term loyalty to the company,” saidthe VP of HR.

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Case study I:

A leading telecommunication company – Leading–edgelearning opportunities, combined with tailoredcompensation package entice staff to stay

This company is a recognized leader in delivering communications capabilities that enhance the human experience, ignite and power globalcommerce and secure and protect the world’s most critical information.Serving both service provider and enterprise customers, the company deliversinnovative technology solutions encompassing end–to–end broadband, Voiceover IP, multimedia services and applications and wireless broadbanddesigned to help people solve the world’s greatest challenges. The companydoes business in more than 150 countries.

Many of the company’s employees are technical people employed in the areasof Research and Development, which traditionally experiences high levels ofstaff turnover.

Compensation and Benefits Director of Greater China at the company notedthat challenging and leading–edge work environments combined with strategically designed compensation packages is a fundamental best practiceto retaining staff.

Creating stimulating work environments through global exposure to technological developmentsAdvancements in technology move rapidly. Consequently, technology specialists are inspired to continually explore and experiment with the mostadvanced and up–to–the–minute equipment. They are passionate about theirwork and thirst for exposure to pioneering technology. Access to these toolsand opportunities challenges their intellect as well as keeping their skills relevant and marketable.

The C&B Director said that the company focuses on providing continuousadvanced technology training and first class Research and Development infrastructure knowledge. Often, like over 90% of companies surveyed,training programs are attended overseas which enables employees to stay up–to–date with technological advancements from around the world.

The C&B Director also stressed that the company Young Talent Program is akey approach to retaining selected employees. This identifies high–achievingpeople who have the potential to fulfill senior positions in the future.“Participants are placed in challenging roles that provide a high degree of jobsatisfaction. The companies interest and investment in their development isreturned by the employees’ long–term loyalty,” she said.

Tailor compensation packages for individual circumstances“Our compensation packages are an important factor in retaining employees,”she added. A range of strategies are used. For example, for large projects, thecompany identifies key employees that it needs to encourage to stay for thelength of the project. This is often done by offering retention bonuses–usuallyof one to two months salary. Nearly 30% of companies surveyed by Merceroffer retention bonuses to selected employees.

At a broader level, The company also has a four–year vesting stock optionplan that is open to all employees. The C&B Director said, “This plan sendsemployees important messages from the organization. Firstly, that yourefforts to the success of the business will be individually rewarded as thevalue of the company increases. And secondly, it shows employees that thecompany values and rewards company loyalty.”

Company profile and participation list

Company profileDistribution of participating companies by industry

Nearly one–fourth (24%) of companies participated in the survey come fromHigh–tech industry, followed by Consumer, Chemical and Pharmaceuticalindustries, all of which are facing fierce talent wars. The average turnover rateof all industries reaches 12.8% in 2005. In the Pharmaceutical industry, thisfigure is as high as 17.6%.

Distribution of participanting companies by sales revenue (RMB)

Forty–four percent of the participating companies have a sales revenue of lessthan RMB 500 million; 28% are between RMB 500 million to 2 billion, 20%between RMB 2 billion to 10 billion, and 7% have sales revenue greater thanRMB 10 billion.

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Distribution of participating companies by total profit (RMB)

In terms of total profit, 30% of the participants have less than RMB 5 million;32% are between RMB 5 to 100 million and more than one third (39%) of thecompanies have a total profit greater than RMB 110 million.

Distribution of participants by number of employees

Nearly one third (31%) of the participants have less than 200 employees. 21%have employees between 200 to 500; 24% have headcount between 500 to2000 and 23% have more than 2000 employees.

Distribution of participants by stage of development

More than one third of the participants are in the stage of fast developmentfollowed by 31% falling within the development stage. 26% have reached amature stage while 5% are in start up.

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40%

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Start Up Developing Fast developing Mature Post maturity

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